Reforms in Agriculture Marketing Synergy Between APMCs and National Spot Exchange

Reforms in Agriculture Marketing

Synergy Between APMCs and National Spot Exchange

Amit MukherjeeSenior Manager

INDEX

www.nationalspotexchange.com

1. Government’s perspective - Excerpts From Economic Survey

2. Empirical data: Learning from past experience

3. Electronic Spot Exchange: National Spot Exchange Limited

4. A peep into our journey - Concept to Reality

EXCERPTS FROM ECONOMIC SURVEY

A Perspective of Government


DEVELOPMENT OF ELECTRONIC SPOT EXCHANGES


The Government has allowed the National Commodity Exchanges to set up three spot exchanges in the country, namely the National Spot Exchange Ltd. (NSEL), NCDEX spot Exchange Ltd. (NSPOT) and National Agriculture Produce Marketing Company of India Ltd. (NAPMC). During 2009, there was significant expansion of spot exchanges’ trading facilities in India. These spot exchanges have created an avenue for direct market linkage among farmers, processors, exporters and end users with a view to reducing the cost of intermediation and enhancing price realization by farmers. They will also provide the most efficient spot price inputs to the futures exchanges. The spot exchanges will encompass the entire spectrum of commodities across the country and will bring home the advantages of an electronic spot trading platform to all market participants in the agricultural and nonagricultural segments. On the agricultural side, the exchanges would enable farmers to trade seamlessly on the platform by providing real-time access to price information and a simplified delivery process, thereby ensuring the best possible price. On the buy side, all users of the commodities in the commodity value chain would have simultaneous access to the exchanges and be able to procure at the best possible price. Therefore the efficiency levels attained as a result of such seamless spot transactions would result in major benefits for both producers and consumers. These Spot Exchanges will also provide a platform for trading of Warehouse Receipts.

-Economic Survey 2009-2010, Chapter 8, Section 106

Economic Survey : 2009-10

Spot exchanges have created an avenue for direct market linkage among farmers, processors, exporters and end users with a view to reducing the cost of intermediation and enhancing price realization by farmers.)

On the agricultural side, the exchanges would enable farmers to trade seamlessly on the platform by providing them real-time access to price information and a simplified delivery process, thereby ensuring them the best possible prices.

So far, Maharashtra, Karnataka, Gujarat, Rajasthan, Orissa and Madhya Pradesh have given licenses to the spot exchanges to undertake electronic spot trading. The agricultural commodities traded on the spot exchange platform are cotton, castor seed, desi chana, guar seed, RM seed, wheat, barley, red arecanut, maize, yellow peas, urad, lemon tur, soyabean, Jeera, ground nut, sugar, moong and pepper. In the process, Farmers’ realization has increased by 4-5 per cent.

Box 5.2 : Development of electronic spot exchanges

Some Quotes from Economic Survey : July 2009

Extend spot commodity trading in electronic form to agricultural markets by involving APMCs.

Economic Survey 2008-09 (Chapter 2: Box 2.4: Financial Markets: Funds for dynamic entrepreneurs)

The Government of India had appointed a committee under the chairmanship of Prof. Abhijit Sen, Member, Planning Commission to study the impact of futures trading, if any, on agricultural commodity prices. The Committee was appointed on March 2, 2007 and submitted its report on April 29, 2008.

The main findings and recommendations of the committee are:

• Negative sentiments have been created by the decision to delist futures trades in some important agricultural commodities;

• The period during which futures trading has been in operation is too short to discriminate adequately between the effect of opening of futures markets, if any, and what might simply be the normal cyclical adjustments in prices;

Cont….


Some Quotes from Economic Survey : July 2009

LEARNING FROM PAST EXPERIENCE

Empirical data


Impact analysis : NSEL prices higher than mandi price:

case study: Castor Seed at Kadi, Gujarat


Impact analysis : NSEL prices higher than mandi price: case study: Castor Seed at Palanpur, Gujarat


Impact analysis : NSEL prices higher than mandi price: case study: Castor Seed at Patan, Gujarat



Learning from one year of operation

• Farmers’ realization has gone up

• Mandi cess collection has gone up

• VAT collection has gone up due to reporting of all transactions at

initial stage

• Some mandis, which were non operational, have become active

when we started our operation in such mandis

• We have received good support from mandi authorities in terms of :– Allottment of shops/ godown in the mandi

– Awareness drive among farmers

• We have received regulatory support from State Govts: – Rebate in market cess to the extent of 25 % of existing rate by Govt. of

Maharashtra

– Rebate of 30 % in market cess by Government of Karnatakawww.nationalspotexchange.com


Model for Scaling up the operation

• Proof of concept available

• NSEL operational at 56 locations in different states:

– Gujarat, Maharashtra, Karnataka, Rajasthan, MP, Bihar, Orissa

• But, its real impact will be visible across the nation, if its operation is

scaled up to 1000s of locations

• This is possible through a structured synergy between APMCs and

National Spot Exchange

APMCs : In perspective

They have done a wonderful job in organizing trade for farm produce and providing marketing infrastructure to farmers

They were set-up to provide a platform, where a farmer can sell his marketable surplus to traders, who in turn will sell to retailers and end users located in the vicinity.

By design, market for agri produce was conceptualized as a localized market and so, the concept of market area, market yard, etc. came into being, while for VAT and other taxes, entire state was considered as a market place.

Hence, APMCs continued to be a localized haat or market place, while in the meantime, commodity markets became pan India as well as global.

Today Indian mangoes are being sold in UP shopping malls, commodities produced in one state frequently move to another state

Hence, APMCs also need to re-define their role so as to provide better price and marketing support to farmers.


Suggested model: Synergy between APMCs and National Spot Exchange

APMCs: Ideal Model for Backward Integration: Connecting farmers to market

National Spot Exchange: Ideal Model for Forward Integration: Connecting buyers located across the country

through Electronic Terminal

Synergy between APMCs and National Spot Exchange: APMCs may become members of National Spot Exchange National Spot Exchange may set-up its trading terminals at APMC market yard Farmers bringing produce to mandi yard will be able to observe price in local auction vis

a vis price prevailing on National Spot Exchange terminal Wherever prices are high, they will sell their produce there NSEL may have its delivery center and payment counter at mandi yard itself, where

farmer can deliver and get his payment, if he has sold on NSEL platform. If a farmer wants to avail loan against pledge of warehouse receipt, NSEL will facilitate

the same. NSEL will collect mandi cess from buyers and pay to APMCs Under this model, National Spot Exchange and APMCs will complement each other



NSEL : Way Forward

E procurement :

MSP reach is limited to specific states, In states like Bihar, Orissa, etc.

farmers do not have access to government MSP procurement

NSEL can conduct E Procurement in all these States

NSEL did cotton procurement last year on behalf of Nafed worth Rs.

206 crores

NSEL can do it in all states, where government procurement machinery

does not exist today. When government agencies is ready with its

infrastructure, we can withdraw


NSEL: Way Forward

• NSEL is conducting sale of Wheat by FCI under OMSS

• NSEL can provide reach of FCI to various locations

• FCI and other Government agencies can sell food grains/ coarse

grains through NSEL at multiple locations in small lots.

• This will help in reducing price inflation and also extend reach of such

auction, connecting the actual users directly


Advantages to the Farmers

NATIONAL SPOT EXCHANGE LIMITED

Electronic Spot Exchange


About NSEL

MISSION

“To develop a pan India, institutionalized, electronic, transparent Common Indian Market offering compulsory delivery based spot contracts in various agricultural and non agricultural commodities, with a view to reduce the cost of intermediation by improving marketing efficiency and thereby improving producers’ realization coupled with reduction in consumer paid price.”


• A National level Electronic Transparent institutionalized spot market.

• A market place where farmers can sell at best possible price and

corporate, processors and end users can buy at the best possible and

competitive rates.

• Provides counter party guarantee in respect of all trades.

• Provides services like quality certification, storage of goods and other

customized value added services.

• Provides facility of bank finance against commodity deposits

National Spot Exchange: An Introduction


National Spot Exchange: Participants


National Spot Exchange: The Process

Some Clients of NSEL: Government Companies


CONCEPT TO REALITYA peep into our journey


Significant Milestones

February 2005 : MoU signed between Nafed, Financial Technologies and MCX

May 2005: Incorporated on 18th May, 2005

June 2007 :

Gazette Notification issued by the Government.

Ministry of Agriculture, Govt. of India recommended NSEL project

October 2007: Obtained license from Gujarat Government

November 2007: Signed MoU with Govt. of Rajasthan

November 2007 : Signed MoU with IL & FS for common service centers being set

– up under National E Governance Project to be connected to NSEL project

January 2008 : Obtained license from Maharashtra Government

May 2008: Obtained license from Karnataka Government for setting up spot

exchange in the State of Karnataka

June 2008: NSEL signed a Memorandum of Understanding with the Gujarat Agro-

Industries Corporation Ltd (GAIC) to create a strategic alliance for development of

agri-business and, providing an electronic market platform in the State. contd…

Significant Milestones

June 2008: NSEL starts its Membership drive July 2008: Commencement of Mock trading October 2008: Commencement of Live Trading on 15th October December 2008 : Nafed Board approves sale of cotton through NSEL and the

contract was launched by NSEL as approved by Nafed Board to help exporters, mills and merchants across the country

January 2009: Commenced cotton procurement in AP under PSS on behalf of Nafed

July 2009: CCI follows the steps of Nafed and becomes member of NSEL to sell cotton bales on NSEL platform on the same terms

Nov 2009: Government of Orissa granted license. Commencement of operation in Orissa

December 2009: Signed agreement with Nafed for cotton procurement under PSS operation in Andhra Pradesh

December 2009: Obtained license from Government of Rajasthan

March 2010: FCI started using this platform for sale of wheat

Current Status

• Signed MoU with:– Government of Madhya Pradesh

– Government of Rajasthan

– Government of Maharashtra

– Government of Orissa

– IL&FS

• Obtained license from: – Government of Maharashtra

– Government of Karnataka

– Government of Gujarat

– Government of Madhya Pradesh

– Government of Orissa

– Government of Rajasthan

• Live trading in 26 commodities in 12 states going on

NSEL by End of FY 2009-2010


Total number of Members: 338

Total Trading Terminals across the country: 1900

Number of States currently operational: 11

Total number of Commodities being traded: 25

Total Number of commodities contract: 206

Total number of Delivery location: 57

Total deliveries handled during FY 09-10 year: Rs. 3045

crores.

At present, a number of Government companies are using our

facilities. MMTC, PEC, CCI, FCI and Nafed are our members

Our plan is to scale up our operations to 1000 locations

within next 3 years.


Commodity Delivery Centre (States)Guar Seed Bikaner, Jaipur (Rajasthan)

Guar Gum Jodhpur (Rajasthan)

Jeera Jodhpur (Rajasthan)

Lemon Tur Mumbai (Maharashtra)

Maize Maheshkhoont (Bihar), Jalgaon (Maharashtra), Umerkote (Orissa), Davangiri (Karnataka.)

RM seed Jaipur, Jodhpur (Rajasthan)

RBD Palmolein Kandla, Mundra (Gujarat)

Silver Ahmedabad, Rajkot (Gujarat), Mumbai (Maharashtra), Kolkata (West Bengal), Hyderabad (Andhra Pradesh), Chennai (Tamilnadu), Jaipur (Rajasthan)

Soyabean Ganj Basoda, Vidisha (Madhya Pradesh), Jalgoan, Nandurbar (Maharashtra)

Urad , Moong & Yellow Peas

Mumbai (Maharashtra)

Wheat Rajkot (Gujarat), Jaipur, Chomu (Rajasthan), Delhi

Castor Oil Kandla (Gujarat)

Steel (Ingots & Billets) Raipur (Chattishgarh), Jharsuguda (Orissa)

Commodities LaunchedCommodities Launched


Commodity Delivery Centre (States)Arecanut Shimoga, Channagiri (Karnataka)

Bajra Jaipur (Rajasthan)

Barley Jaipur ( Rajasthan)

Castor Seed Palanpur, Kadi, Jagana, Mehsana, Patan ( Gujarat )

Chana Kantawala Indore ( Madhya Pradesh)

Cotton Bales Mumbai, Yeotmal, Nagpur, Wani, Amravati, Akola, Khamgaon, Dhule, Jalgaon, Aurangabad, Parbhani, Nanded, Parli (Maharashtra),Himmatnagar, Rajkot (Gujarat), Adilabad, Nizamabad (Andhra Pradesh)

Cottonseed Wash Oil

Kadi (Gujarat)

Desi Chana Delhi, Bikaner, Jaipur, Sri Ganganagar (Rajasthan), Ganj Basoda , Vidisha (Madhya Pradesh), Osmanabad (Maharashtra)

Gold Ahmedabad, Rajkot (Gujarat), Mumbai (Maharashtra), Kolkata (West Bengal), Hyderabad, Vijayawada (Andhra Pradesh), Chennai (Tamilnadu), Jaipur (Rajasthan), Delhi

Groundnut Jaipur, Bikaner, Jodhpur (Rajasthan), Maliya Hatina (Gujarat)

Commodities LaunchedCommodities Launched

Live trading in 25 commodities in 12 states

National Spot Exchange Limited , 102 A, Landmark, Suren Road, Chakala, Andheri (East), Mumbai - 400093. Tel: +91-22-67619900 Fax: +91-22-67619931, E-

mail: [email protected]

Thank You

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Reforms in Agriculture Marketing Synergy Between APMCs and National Spot Exchange

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